FEBRUARY 14, 2016

By Unnikrishnan.V, Superintendent (Retd).

Service Tax Suggestions:

1. Powers of ROM to original authorities etc : The provisions contained in section 74 for Rectification of Mistake apparent from the record, in any order passed by a Central Excise Officer must be explicitly extended to the order in original passed by the Commissioners and the order in appeals passed by the Commissioner (Appeals). The present wordings in sub section (3)(b) contains ambiguity about the applicability of the powers on ROM on the orders passed by these authorities. Also, the committee of Chief Commissioners who are reviewing the orders passed by the Commissioners and the committee of Commissioners who review the orders of Commissioner (Appeals) should be vested with the power to carry out ROM.

2. Penalty in non-levy detected by Audit parties .

The amended version of section 73, 76 and 78 by Finance Act, 2015 has removed the provisions of 73(4A), which specifically dealt with Audit objections. Now the departmental officers in the field are insisting for 15% penalty in all cases of short levy/non levy detected by the Audit Parties. In terms of section 73(1), wherever, the short payment /non payment is made good by the assessee on his own or on being pointed out by a Central Excise Officer, and informs the central excise officer of such payment in writing, before the service of notice, no further notice or proceedings are to be initiated in respect of the amount so paid. In other words, if the tax and interest is paid, even in all the cases pointed by any Central Excise Officer, the proceedings are to be treated as closed and no SCN need be issued. Thus there is no justification to insist for the 15% penalty, in terms of section 78 in such cases. This aspect may be explicitly made clear by suitable amendment in the relevant section 73.

3. Mandatory penalty under section 78.

At present, in all cases invoking the extended period alleging suppression with intent to evade payment of service tax, the penalty equal to the tax involved is being imposed. In many cases, where assesses would have paid the admitted liability or a portion there of, the SCN is being issued disregarding the provision in section 73(3) applicable for the amount so paid; and the demands are confirmed on the full amount with a clause to appropriate the tax already paid. Ultimately, the penalty under section 78 is imposed on the whole amount of tax, including the already paid taxes. This is against the spirit of the law, as envisaged. Specific amendment may be made not to issue any SCN for the amount of tax already paid before the issue of SCN.

4. Extend the time limit to revise the ST3 returns .

The present law provides for revision of ST-3 return upto 90 days as per rule 7B of STR, 1994. Again, as per rule 9(11) of the CCR, 2004, the time limit for revision of the cenvat credit details is prescribed as 60 days. While there is such an inconsistency in this matter, it also appears that there is no justification for this time limit of 90 days. When the ST3 return need be filed only once in Six months, before 25 th of April and Oct every Financial year, the time limit for revising any details therein may be extended to Six months from date of filing or the due date of next return, whichever is earlier. Incidentally, the Income tax law provides for revision of the returns till the due date of next return or the scrutiny of assessment by the Officer. This would go a long way in properly availing this facility, especially after the Annual Audit and closing of Accounts. Even the feasibility of an Annual return in place of the Half yearly return with Six months time to revise the same may be worth consideration.

5. Cenvat credit on the service tax paid on Lease rent, installation of plant and machinery etc.

The Cenvat Credit Rules, 2004 do not visualize the concept of ‘capital services' and in all cases of input Services, the time limit prescribed to avail the cenvat credit is within ONE year. There are cases where the factories are set up on leased land and the time taken to set up the factory is more than ONE year and the credit is disallowed because the time limit to avail the cenvat credit is one year. Only after the lease amount is paid, the land would be made available to set up the factory and only with a door no. and address for the factory only, the Excise Registration can be obtained and thus the time limit of ONE year would have lapsed in the meantime. As of now, there is no provision to avail the service tax paid on the lease rent after a period of ONE year. Similar instances may arise in other services availed prior to the erection commissioning and registration of the factory under Central Excise law. To overcome such exigencies, specific provisions may be provided so as to enable the credit of service tax paid on lease rent etc paid before obtaining the Cex. registration of the factory (on the same lines as now available for capital goods and machineries).

6. Penal rates of interest on service tax not paid.

The present rates of interest imposed w.e.f 1/10/2014 for delayed payment of service tax is unique of its kind. There is no justification and is even discriminating / illegal to impose such special rates only for service tax, leaving aside other indirect taxes like Central Excise or Customs as well as the Direct taxes. Moreover, the penal rates are so high as 24 and 30% are applicable after six months and One year in all the cases of non payment/short payments.

There are many cases where the non-payment was due to genuine reasons / issues involving interpretation of the law, exemption notification etc. The assessees would not have collected the service tax from the clients as well. In such cases, the section 67(2) clearly provides to compute the tax treating the amount received as inclusive of tax. On the same analogy, when the tax is ordered to be paid with interest even in such cases, the total amount received should be allowed to be treated as tax plus the interest payable. Even otherwise, the law must be so amended to apply the enhanced rtes only in cases where the tax has been actually collected and not remitted to the Government.

7. Immunity/Amnesty in all pending cases :-

Now that it is certain to go for the GST regime, it may be worth considering to announce a One time Amnesty scheme in all pending cases before the various levels of SCN, Adjudication, appeals both before Commissioner (Appeals) and CESTAT etc including High Court and Supreme Court to settle all such cases. The fact that there are over ONE Lakh cases pending before the various benches of CESTAT, almost equal or before the various Commissioner(Appeals), and the few lakhs of SCNs pending before the adjudicating authority should be an eye opener for the CBEC to adopt some drastic steps to wipe off this alarming pendency. The time is proper now to have an amnesty scheme to allow to settle all such cases on payment of admitted liability of tax/duties and absolve them from all other penal provisions. The lacuna in the last VCES, 2013 was that it had restricted the scope only for cases of pre SCN stages, including audit. The new scheme should leave it open to all assesses alike, relieving all of them now struggling under litigation at various levels.